Spillover effects of ECB's and FED's monetary policies on the developing countries in Africa

Abstract

This paper studies the spillover effects by estimating the long term effects and short run spillovers of FED's and ECB's monetary policies on African countries using the error correction model. The countries in the sample include Ghana, Kenya, Madagascar, Malawi, Mauritius, Mozambique, South Africa and Tanzania, all of which have a floating currency and relatively free capital movements.

The main finding of the estimations suggests that along with inflation, foreign policy rates play a role when determining the local policy rate. The estimations also support that, for the counties in the sample, the monetary policy of ECB has stronger impact on the policy rate than that of FED in most of the cases.